The Immigrant Investor Program (also known as the EB-5 program) was once considered the ‘red carpet’ entry into the United States. It was one of the few avenues of admission into the country that was considered fast and pain free. Those days may be over; at least for Chinese investors. Just two years ago it could take a typical investor 6-9 months to have an I-526 application related to a direct project approved and up to 18 months for an I-526 related to a regional center affiliated project. The investor’s visa would be approved shortly thereafter. These days the wait is calculated in years not months.
The delay is a result of the dramatic increase in visa applicants that has arisen due to the skyrocketing popularity of the program without an accompanying increase in available visas. In other words there is a bottleneck at USCIS. 10,000 visas are made available annually to applicants through the Immigrant Investor Program. Each country is initially capped at 7% of the pool. However, if other countries do not use their allocations, those unused visas may be made available to countries that exceed their cap. Chinese investors have been the dominant users of the program and they typically exceed their cap and use the excess left by other countries. In 2015, China claimed 7,616 of the total 8,773 Visas that were issued. More interesting than the number of visas issued to Chinese investors, however, is the number of applicants. It is estimated that more than 20,000 Chinese investors applied to the EB-5 program in 2015. This should now make it more clear why a backlog in processing times has developed; there are simply too many people applying for a fixed number of spots.
The increase in wait times actually suffers from a compounding effect that makes this problem worse than one realizes. There are two steps involved in entering (or legally remaining in) the United States through this program. First, an I-526 application needs to be filed and secondly, upon approval, the investor must apply for an actual visa (or adjustment of status). There is now a waiting behind pending applications for step one and even after approval there is yet another wait for step two. When one recalls that the visa allocation is for 10,000 people (one visa per person) and each I-526 application typically represents a family (so more than one person) then an increase in I-526 applications actually represents a greater grab for a fixed number of slots than the nominal increase in applications by itself might suggest. It is now believed that an investor who applies this year may have a six year wait and one who applies in 2017 may have an 8 year wait. Scenarios have been projected that show more than a 10 year wait in some cases!
What does this mean for those seeking funding through the Immigrant Investor Program? Transactions that hold investor funds in escrow while awaiting their I-526 approval will face a frustrating wait to access money and may stall (or fail) as a result. With this new knowledge of delays in approvals, EB-5 transactions should be designed with bridge funding in place. Projects should also diversify their investor base and look to countries that do not have the interminable wait time associated with China. Lastly, projects will now need to maintain EB-5 related records for longer than typical 5 year period as investors who take 10 years to exit a project will need accurate records to remove the conditions from their temporary visas.
These are only a few of the implications of this new waiting period. The industry is lobbying for an increase in the visa allocation to reduce the backlog but until then we structure all of our EB-5 transactions with these risks in mind so our project developers are positioned for success. China, though the largest source of investors, does not always provide ideal partners for projects that are not mainstream and so we have long been working with our clients to explore new frontiers even before the matter of retrogression became a hot topic. We hope the Chinese don’t have to wait as long for their visas as they did for the completion of the Great Wall, but if they do, we are here to guide projects around this difficult issue.